Australians sitting on mountains of cash as wealth outpaces debt

Australian households saw their wealth balloon to a record A$11.7 trillion ($8.97 trillion) last quarter as cash holdings topped a trillion dollars for the first time ever, boding well for spending in the face of tepid wages growth.

Mortgage debt in the country stands at A.7 trillion, yet that is equal to just 26.7 percent of the value of homes and land, suggesting home prices would have to fall a long way to put the average owner into the red. (Reuters)

Australian households saw their wealth balloon to a record A$11.7 trillion ($8.97 trillion) last quarter as cash holdings topped a trillion dollars for the first time ever, boding well for spending in the face of tepid wages growth. Thursday’s figures from the Australian Bureau of Statistics showed households’ net worth, after taking into account all their liabilities, rose 3.6 percent to A$9.4 trillion in the three months to December. Most of the gains came from a A$247 billion increase in home and land values, which took them to A$6.4 trillion. The country’s annual economic output (GDP) is worth A$1.7 trillion.

This accumulation of wealth is a major reason the Reserve Bank of Australia (RBA) considers household balance sheets to be in good repair overall, even as they fret about debt-fuelled speculation in the property market. “From a wealth standpoint, you would have to say Australian households are sitting pretty right now,” said Savanth Sebastian, a senior economist at asset manager CommSec.

“Yes, the growth rate of debt is a concern. The longer it continues to outpace income growth, the more vulnerable households become,” he added. “But the asset side of the balance sheet is often overlooked and that’s very strong.” He noted that the net worth of every man woman and child in the country stood at almost A$387,000, a solid cushion to support spending in the face of sluggish wage growth.

While there has been much alarm at rising debt levels in Australia, little is made of the asset side of household balance sheets which makes the picture appear less threatening.

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Mortgage debt in the country stands at A$1.7 trillion, yet that is equal to just 26.7 percent of the value of homes and land, suggesting home prices would have to fall a long way to put the average owner into the red. The ration of all debt to all assets had also dipped to just under 20 percent, its lowest since early 2008. Australians have also been squirreling away a pile of liquid assets. Cash and deposits alone topped A$1 trillion last quarter for the first time on record, having more than doubled over the preceding decade.

The ABS estimates the ratio of household debt to liquid assets, which includes cash, deposits, debt securities and shares, fell 1.1 percentage points to 124.4 percent in the December quarter.

That was considerably lower than the often-cited debt to disposable income ratio which is currently at record highs above 180 percent. ($1 = 1.3045 Australian dollars)